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1QCY11 results
Nestle’s 1Q recurring earnings grew 33% YoY to Rs2.6bn, 5% ahead of
estimates driven by higher revenues (+22% YoY) and marginally better
Ebitda margins. We revise up our EPS estimates 1.5% over CY11-12 as
we factor in better 1Q results; we also introduce CY13 estimates. While
we are positive on long term growth potential for packaged foods and
Nestle should be an obvious beneficiary of this, current valuations at 35x
one year forward earnings already capture this, in our view. Upf stays.
1Q net earnings ahead of our estimates
Nestle’s 1Q pre-ex earnings grew 33% YoY to Rs2.6bn, 5% higher than our
estimates, largely on the back of better than expected revenue growth
(+22.3% YoY); Ebitda grew at 27% with 75bps margin expansion which was
also slightly better. While operating other income declined 21% YoY, financial
income more than doubled; depreciation rose by just 5.5% (-9% QoQ) post
the full amortisation of intangibles in the previous quarter. A 190bps YoY
decline in tax rate to 28% further provided a boost to net earnings.
Strong momentum continues in the topline
Nestle’s domestic revenues grew 23% YoY while exports grew by 10%, both
of which were ahead of estimates. This was the fourth consecutive quarter of
20%+ domestic revenue growth, though was off a low base. A continued
momentum in domestic revenues also reflects brand strength and continued
focus, particularly in the context of rising competition in segments like
noodles (HUL, ITC, GSK), milk products (Danone) etc. Exports growth turned
positive after two quarter of decline which was also encouraging.
Margin expansion also helped
Nestle’s gross margins expanded 100bps on the back of better product mix,
channel mix (lower proportion of sales to defence/ exports) and reduction in
promotions even while input costs (agri products) continued to remain high.
Other expenses rose by a 24% YoY, partially due to one time charges on redesign
of existing facility in order to expand capacity. Resultant Ebitda
margins were up 75bps, slightly ahead of our estimates.
Raising EPS estimates by around 1.5% for CY11-12
We raise our EPS estimates by around 1.5% over CY11-12 to build higher
revenues; also revise up our target price to Rs3,400/sh (cf. Rs3,350). While
management’s high capex focus reflects its upbeat outlook for future, current
valuations at 35x one year forward earnings already capture strong growth
potential, in our view; we maintain Upf.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
1QCY11 results
Nestle’s 1Q recurring earnings grew 33% YoY to Rs2.6bn, 5% ahead of
estimates driven by higher revenues (+22% YoY) and marginally better
Ebitda margins. We revise up our EPS estimates 1.5% over CY11-12 as
we factor in better 1Q results; we also introduce CY13 estimates. While
we are positive on long term growth potential for packaged foods and
Nestle should be an obvious beneficiary of this, current valuations at 35x
one year forward earnings already capture this, in our view. Upf stays.
1Q net earnings ahead of our estimates
Nestle’s 1Q pre-ex earnings grew 33% YoY to Rs2.6bn, 5% higher than our
estimates, largely on the back of better than expected revenue growth
(+22.3% YoY); Ebitda grew at 27% with 75bps margin expansion which was
also slightly better. While operating other income declined 21% YoY, financial
income more than doubled; depreciation rose by just 5.5% (-9% QoQ) post
the full amortisation of intangibles in the previous quarter. A 190bps YoY
decline in tax rate to 28% further provided a boost to net earnings.
Strong momentum continues in the topline
Nestle’s domestic revenues grew 23% YoY while exports grew by 10%, both
of which were ahead of estimates. This was the fourth consecutive quarter of
20%+ domestic revenue growth, though was off a low base. A continued
momentum in domestic revenues also reflects brand strength and continued
focus, particularly in the context of rising competition in segments like
noodles (HUL, ITC, GSK), milk products (Danone) etc. Exports growth turned
positive after two quarter of decline which was also encouraging.
Margin expansion also helped
Nestle’s gross margins expanded 100bps on the back of better product mix,
channel mix (lower proportion of sales to defence/ exports) and reduction in
promotions even while input costs (agri products) continued to remain high.
Other expenses rose by a 24% YoY, partially due to one time charges on redesign
of existing facility in order to expand capacity. Resultant Ebitda
margins were up 75bps, slightly ahead of our estimates.
Raising EPS estimates by around 1.5% for CY11-12
We raise our EPS estimates by around 1.5% over CY11-12 to build higher
revenues; also revise up our target price to Rs3,400/sh (cf. Rs3,350). While
management’s high capex focus reflects its upbeat outlook for future, current
valuations at 35x one year forward earnings already capture strong growth
potential, in our view; we maintain Upf.
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